May 13, 2011 – Gold bullion prices had quite a ride this week, just like everything else. They seem to be stuck in a loop – nudge up close to $1515, turn around, slide down $1485 or so then turn around once more then do it all again. Investors are turning into squirrels caught in the middle of the street, darting back and forth seeking some sort of safety, unaware that had they just paused for a moment to rationally assess the situation, they would long since have gotten out of harm’s way.

That is only following the typical pattern of the typical retail investor – they cautiously watch as prices climb then all of a sudden a mob forms and they rush en masse into the market. That is exactly what the insiders want them to do so they can cash in before the bubble bursts. Then, as suddenly as the mob formed, it reverses direction. Investors dump their holdings driving prices down to where the traders are now perched like vultures. That’s what they call dumb money.

Holding emotions in check is quite difficult for human beings, but it is absolutely essential to being a winning investor. In “Good to Great,” author Jim Collins describes what his team called the Stockdale Paradox: You must have unwavering faith that regardless of difficulties you will ultimately prevail and you must “at the same time have the discipline to confront the most brutal facts of your current reality.” Collins was speaking of great leaders but it is equally true for great investors.

Nobody likes looking at the unadulterated facts of our current economic situation, but we cannot even begin to make sound investment decisions until we do. The bad and the ugly are there and must be confronted before the good can be found. And that means pick a strategy and tweak it, but only at the glacial pace of real social and economical change.

If you lack the faith that you will prevail in the long run you will forever be vulnerable to mob stampedes. But if you do have the faith, you can forgo the frantic buying and selling and stay focused on dealing with the brutal facts.

Seen from that perspective, the +/- 1% gyrations in the gold bullion price really don’t mean a thing.

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Jonathan Monroe

Senior Staff Writer - Gold-Bullion.org